About UCLA Anderson Global Supply Chain Blog
This blog is developed by the Decisions Operations and Technology Management (DOTM) Faculty at the UCLA Anderson School as well as special guests. It is intended to report, analyze, and comment on events that relate to current Global Supply Chain Management issues. Each blog is presented in English, (Simplified) Chinese, and (Castilian) Spanish, and it can take one of the following formats:
(a) An Interview -- the author formulates questions about a current issue, and the interviewee provides commentary.
(b) An insight -- the author provides insights concerning global supply chains, including current events.
(c) An analytical piece -- the author analyzes a particular supply chain issue and formulates descriptive and/or prescriptive views.
For more information on the blog contributors, check the DOTM website.

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05/31/2016

Made in India: an Impossible Dream or A Reachable Star?

Rafael Lozano, Vinay Kondapi, Christopher Tang, and Tommy Tseng

In February, 2016, India unveiled the world’s cheapest smartphone “Freedom 251” that sells for US$ 4! The Freedom 215 phone comes with a 4-inch display and a 3.2 megapixel front camera. It runs on Android 5.1 operating system with preloaded apps such as Women Safety, WhatsApp, Facebook, Twitter, etc. The manufacturer of this phone (Ringing Bells Pvt Ltd) is receiving pre-orders and the actual delivery is supposed to be begin by June 30, 2016. Not only are the Indians excited about this phone, Prime Minister Modi embraces this phone because it supports his “Made in India” and “Digital India” initiatives. Also, it was reported that the Indian government provided “strong support” for the development of Freedom 251.

Unfortunately, this “made in India” cheapest smartphone turned out to be a distant dream. It was found that the “prototype” of Freedom 251 was actually an existing model Ikon 4 imported by Adcom (an Indian company that imports tablets and mobile phones) and the same model (Adcom Ikon 4) was available for sale on multiple e-commerce websites including Gadgets360, Amazon, Snapdeal and Shopclues in India already for approximately US$ 60 (Dixit, 2016). To calm public concern, Ringing Bell promised to refund the first phase's 30,000 customers, and Adcom has issued a statement to dissociate itself from the company.

To truly develop an affordable “made in India” smartphone for the huge Indian market[1], one needs to understand the cost component associated with each step along the supply chain. Relative to China, India has one key advantage: cheaper labor cost. However, this advantage alone cannot tip the balance in favor of “made in India”. To make this dream come true, India government needs to develop short-term and long-term solution to improve economic development in India.

Current, India is not equipped to develop cheaper and better components for smartphones. As such, importing components to India for the assembly operations appear to be sensible. Therefore, in the short term, the Indian government should develop incentives for contract manufacturers to set up factories in India. It is gratifying to note that the government has set this in motion. In 2015, Foxconn announced that it plans to invest US$5 billion to set up factories in India, and Lenovo announced that it is setting up a factory in Chennai. However, to lower the total cost of producing a smartphone, cheap labor cost in India can help, but lowering the import tariff for importing components is critical. As of 2014, tariffs for imported components to India have been be as high as 28%, while topping out at around 12% for finished products!

Once India can reduce the production cost of a smartphone, India government should find ways to improve the education system to develop more scientists and engineers so that India has develop better and cheaper and better components for smartphones and develop various Apps and other information services for smartphones in the long term. Also, the Indian government should improve its retail sector using online and offline selling formats.

Prime Minister Modi’s “Made in India” is a great aspiration. From aspiration to reality, there is a need to develop a coordinated plan for the entire ecosystem to thrive!